More Indian owner-led businesses now open a company in Dubai, Abu Dhabi or Riyadh as their first step abroad. Most of the attention goes to the Gulf side: free zone or mainland, licence, visas, bank account. The Indian side gets less attention, and that is where the avoidable problems usually start. Money that leaves India to set up or fund a foreign company is regulated under the Foreign Exchange Management Act, 1999 (FEMA), and the rules are specific about who can invest, how much, in what, and what must be reported and when.
This guide sets out India's overseas investment framework in plain terms for an Indian company, LLP or founder investing in the Gulf (GCC). It is general guidance, not legal or tax advice. Your authorised dealer bank and chartered accountant should confirm the treatment of your specific transaction before you remit.
The three documents that govern investing abroad
Since 22 August 2022, overseas investment from India has run on a new framework that replaced the older joint venture and wholly owned subsidiary regime.
| Document | Issued by | What it covers |
|---|---|---|
| Foreign Exchange Management (Overseas Investment) Rules, 2022 | Central Government, G.S.R. 646(E), 22 August 2022 | Definitions, who may invest, limits, prohibitions, pricing |
| Foreign Exchange Management (Overseas Investment) Regulations, 2022 | Reserve Bank of India, FEMA 400/2022-RB, 22 August 2022 | Loans, guarantees, pledges, deferred payment, obligations, reporting, late fees |
| Master Direction: Overseas Investment | Reserve Bank of India, 24 July 2024, updated as on 1 April 2026 | Operating instructions to banks, consolidating later circulars |
The Reserve Bank of India administers the rules, but in practice you deal with one bank. Every investor making Overseas Direct Investment must designate an authorised dealer (AD) bank and route all transactions for that foreign entity through it.
What counts as ODI, and what counts as OPI?
The rules split overseas investment into two kinds, and the split decides which conditions apply.
| Overseas Direct Investment (ODI) | Overseas Portfolio Investment (OPI) | |
|---|---|---|
| What it is | Acquiring unlisted equity capital of a foreign entity, subscribing to its memorandum of association, buying 10% or more of a listed foreign entity, or buying less than 10% of a listed entity with control | Any investment in foreign securities that is not ODI, such as a small listed stake without control |
| Typical owner-led example | Setting up a UAE or Saudi subsidiary, or buying into an unlisted Gulf distributor | Buying a few shares of a listed foreign company |
| Key limit for an Indian entity | Total financial commitment within 400% of net worth | OPI within 50% of net worth |
Three definitions do most of the work:
- Control means the right to appoint a majority of the directors or to control management or policy decisions, including through shareholder or voting agreements that give 10% or more of the voting rights.
- Foreign entity means an entity formed outside India that has limited liability. Unincorporated structures are allowed only where the core activity is in a strategic sector, such as energy and natural resources.
- Equity capital means equity shares, perpetual capital, irredeemable instruments, or fully and compulsorily convertible instruments. Anything redeemable, non-convertible or optionally convertible is treated as debt.
Once an investment is classified as ODI, it stays ODI even if the stake later falls below 10% or you lose control.
Who can invest, and through which route?
An Indian entity. A company, a body corporate, an LLP or a registered partnership firm can make ODI under Schedule I of the rules, through its designated AD bank, without prior approval in most cases. Each Indian investor is now assessed separately; the old idea of grouping all Indian investors as one "Indian party" has gone.
A resident individual. A founder can invest personally under Schedule III, within the Liberalised Remittance Scheme limit of USD 250,000 per financial year. Personal ODI is allowed only in an operating foreign entity that is not engaged in financial services. Where the individual has control, the foreign entity must not have a subsidiary or step-down subsidiary.
A proprietorship or unregistered partnership. These are not Indian entities under the rules. The RBI's directions say the proprietor or the individual partners may invest within their own LRS limits.
The limits and approvals that matter
For most owner-led businesses, the whole framework comes down to a short list of tests.
- The 400% limit. An Indian entity's total financial commitment to all foreign entities, at the time of each new commitment, must not exceed 400% of its net worth as per its last audited balance sheet. That balance sheet must be dated within 18 months before the transaction. Financial commitment includes equity, loans and non-fund-based support such as guarantees.
- The USD 1 billion ceiling. A financial commitment above USD 1 billion in a financial year needs prior RBI approval, even within the 400% limit.
- Central Government approval. Investment in Pakistan, or in any other jurisdiction the Central Government advises, needs its prior approval. So does commitment in strategic sectors or geographies above the normal limits.
- Financial services. An Indian entity that is not itself in financial services can invest in a foreign financial services business, other than banking or insurance, only if it has posted net profits in each of the preceding three financial years. A foreign entity counts as financial services if its activity would need registration with, or regulation by, a financial sector regulator if carried out in India.
- Prohibited activities. No ODI is allowed in a foreign entity engaged in real estate activity, gambling in any form, or dealing in financial products linked to the Indian rupee without RBI approval. Real estate activity means buying and selling real estate or trading transferable development rights. It does not include developing townships or constructing residential or commercial premises, roads or bridges for sale or lease.
- Start-ups abroad. ODI in a start-up recognised as such in the host country must come from internal accruals for an Indian entity, or from the individual's own funds. Borrowed money is not allowed.
- Round-tripping. You cannot make a financial commitment in a foreign entity that invests back into India, directly or indirectly, if the result is a structure with more than two layers of subsidiaries.
- Lender and regulator clearance. If your account is a non-performing asset, you are classified as a wilful defaulter, or you are under investigation by a financial regulator, the CBI, the Enforcement Directorate or the SFIO, you need a no objection certificate first. If the lender or agency does not respond within 60 days, no objection may be presumed.
A few operating rules sit alongside these tests. Pricing must be on an arm's length basis. A loan to the foreign entity needs a loan agreement with interest charged at arm's length, and an Indian entity can lend or guarantee only where it has made ODI in, and has control of, that foreign entity. An Indian entity cannot lend directly to its overseas step-down subsidiary, and a resident individual cannot make a financial commitment by way of debt. A performance guarantee counts at 50% of its amount towards the limit, and no guarantee may be open-ended. Cash is not a permitted mode of payment. Before any disinvestment, you must normally have held the ODI for at least one year.
Reporting: the forms and deadlines
All reporting goes through the designated AD bank in the formats the RBI prescribes. An incomplete filing is treated as no filing.
| Event | What you file | When |
|---|---|---|
| First investment in a new foreign entity | Form FC, to obtain a Unique Identification Number (UIN) for the entity | Before the first remittance or acquisition of equity, whichever is earlier |
| Each financial commitment (equity, loan, guarantee, pledge) | Form FC | At the time of the remittance or commitment, whichever is earlier |
| Proof of investment | Share certificate or other document valid under host-country law | Within six months of the remittance, or the funds must be brought back |
| Annual Performance Report (APR) | APR for each foreign entity | By 31 December every year; if the foreign entity's year ends on 31 December, by 31 December of the next year |
| Foreign Liabilities and Assets return | FLA return on the RBI's FLAIR portal | By 15 July every year, while you hold ODI |
| Disinvestment | Form FC | Within 30 days of receiving the proceeds |
| Restructuring of the foreign entity's balance sheet | Report through the AD bank | Within 30 days of the restructuring |
| Dues from the foreign entity, such as dividends | Realise and repatriate to India | Within 90 days of falling due |
The APR is based on the foreign entity's audited accounts. It is not required where you hold less than 10% without control and have no other financial commitment, or where the foreign entity is being liquidated. Where an APR must be certified and statutory audit does not apply, a chartered accountant certifies it. When several Indian investors hold the same entity, the one with the highest stake files it.
What happens if you file late?
Late filings can be regularised by paying a Late Submission Fee (LSF) through the AD bank, for up to three years from the due date. For the APR, the FLA return, Form OPI and evidence of investment, the fee is ₹7,500 per return. For Form FC and other returns that capture flows, it is ₹7,500 plus 0.025% of the amount involved for each year of delay, capped at 100% of that amount. Two consequences matter more than the fee. Until the delay is regularised, the bank cannot allow any further remittance or financial commitment to that foreign entity. And if you neither file on time nor pay the LSF, you are exposed to penal action under FEMA.
How this fits with setting up in the UAE or Saudi Arabia
The Indian and Gulf processes run in parallel, and the order matters. A workable sequence for an Indian company looks like this:
- Check eligibility. Confirm the investor is an eligible Indian entity, the activity is permitted, the commitment fits within 400% of net worth, and no NOC is needed.
- Pick a host-country form with limited liability. A limited liability company works. A form in which the owner is personally liable does not qualify as a foreign entity, unless the core activity is in a strategic sector. Our UAE free zone vs mainland comparison and the Gulf company formation guide cover the Gulf-side choices.
- Test the activity against the Indian rules. Buying and reselling property in Dubai is real estate activity and is prohibited for ODI. If the Gulf entity will do anything that would be regulated as financial services in India, the three-year profit test applies.
- Pass a board resolution and choose the designated AD bank. Submit Form FC with the supporting documents and obtain the UIN.
- Incorporate and remit through banking channels. Pay capital and setup costs as financial commitment through the AD bank. A person resident in India may not pay on behalf of a foreign entity in any other way, so avoid paying licence fees from a director's personal card. An Indian entity may open a foreign currency account abroad for the purpose of making ODI.
- File proof of investment within six months. Use the share certificate or equivalent document the host jurisdiction issues.
- Put the annual dates in your calendar. FLA by 15 July, APR by 31 December, and repatriation of dividends and other dues within 90 days of falling due.
- Watch any investment back into India. If the Gulf company later invests in India, keep the structure within two layers of subsidiaries.
Saudi Arabia has its own licensing and registration steps for foreign investors, which our Saudi Arabia company registration guide sets out. For Qatar, see our guide to Qatar company setup for Indian businesses. Host-country corporate tax, VAT and substance rules apply on top of the Indian rules, so take advice on both sides. To compare setup routes across all six Gulf states, read our GCC Company Formation Guide.
Common mistakes
- Remitting before the UIN. The bank should not allow any remittance to a foreign entity without one, and paying around the bank creates a contravention.
- Paying Gulf setup costs informally. Licence fees, deposits or rent paid from a founder's card or a group company outside the reported route are payments on behalf of a foreign entity that the rules do not permit.
- Using the founder's LRS for a holding company. Personal ODI is allowed only in an operating entity. Where the founder has control, the entity cannot have subsidiaries.
- Forgetting the six-month proof. If evidence of investment is not submitted in time, the funds must be repatriated.
- Missing the APR or FLA return. The fee is modest, but further remittances to that entity stop until the delay is regularised.
- Assuming any Gulf activity is fine. Property trading, gambling and rupee-linked financial products are prohibited, and financial services carry extra conditions.
- Building loops back into India. A Gulf holding company that invests into India can breach the two-layer limit as the group grows.
An illustrative example
This is an illustrative profile, not a client case. Consider an Indian engineering services company with a net worth of ₹8 crore in its last audited balance sheet, dated within 18 months. It wants a wholly owned limited liability company in a UAE free zone to serve Gulf clients. Its ODI limit is 400% of ₹8 crore, or ₹32 crore, across all its foreign entities, so an initial capital injection and a working capital loan are comfortably within the automatic route.
The company passes a board resolution, files Form FC with its AD bank and receives the UIN. It then remits the capital, followed by the loan under a written agreement at an arm's length interest rate, reporting each in Form FC. Within six months it gives the bank the share certificate issued in the free zone. From then on it files the FLA return each July and the APR each December, and brings any dividends home within 90 days of their falling due. If the founders later want the Gulf company to own other subsidiaries and also invest back into India, they check the two-layer limit before they build that structure.
Where Stratisian fits
Stratisian is an execution-led management consulting firm for owner-led businesses in India and the Gulf (UAE, Saudi Arabia and Qatar). Our market entry work covers entry structure advice, entity incorporation with FEMA and RBI compliance, banking and operations setup, and the first hires, working alongside your chartered accountant and AD bank. Our India-Gulf corridor guide explains how the two-way corridor works in practice.
Every engagement starts with a free 30-minute call. The diagnostic is priced from ₹10,000 + GST (India) or $100 (overseas clients), and execution engagements are priced at 1% of topline revenue, billed monthly (conditions apply: scope, duration and final commercials are agreed in writing after the diagnostic). See our pricing page for details.
If you are moving in the other direction, our guide to GST for foreign companies doing business in India covers the indirect tax side, and the complete guide to India market entry covers entity choice and setup for Gulf businesses.